Forward Pricing Rates - Defense Contract Management Agency

DCMA Manual 2201-01

Forward Pricing Rates ========================================================== Office of Primary Responsibility Indirect Cost Control Capability Effective: February 14, 2019 Change 1 Effective: April 14, 2021 Releasability: Cleared for public release Implements: DCMA-INST 2201, “Indirect Cost Control,” October 4, 2018 Incorporates and Cancels: DCMA-INST 107, “Contractor Insurance/Pension Review,”

March 6, 2014 DCMA-INST 123, “Cost Monitoring,” IPC-1, May 23, 2016 DCMA-INST 130, “Forward Pricing,” July 21, 2014 DCMA-INST 213, “Technical Pricing Support,” March 20, 2014, as amended DCMA-ANX 213-02, “Technical Support to Indirect Costs,” August 6, 2013, as amended

Internal Control: Process flow and key controls are located on the Resource Page Labor Codes: Located on the Resource Page Resource Page Link: https://360.intranet.dcma.mil/Sites/Policy/IC/SitePages/DCMA- MAN%202201-01r.aspx Approved by: David H. Lewis, VADM, USN, Director Change 1 Approved by: David G. Bassett, LTG, USA, Director _________________________________________________________________

https://360.intranet.dcma.mil/Sites/Policy/IC/SitePages/DCMA-MAN%202201-01r.aspx

https://360.intranet.dcma.mil/Sites/Policy/IC/SitePages/DCMA-MAN%202201-01r.aspx

DCMA-MAN 2201-01, February 14, 2019 Change 1, April 14, 2021

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Purpose: This issuance, in accordance with the authority in DoD Directive 5105.64, “Defense Contract Management Agency (DCMA)”:

• Implements policy established in DCMA Instruction 2201, “Indirect Cost Control” • Provides and defines procedures and responsibilities for developing and monitoring

forward pricing rate agreements and forward pricing rate recommendations • Prescribes procedures and assigns responsibilities for establishing a cost monitoring plan • Prescribes procedures and assigns responsibilities for performing technical support to

indirect costs activities • Prescribes procedures and assigns responsibilities for performing contractor

insurance/pension reviews


Summary of Changes 3

SUMMARY OF CHANGES

The following identifies the notable changes that have been incorporated in the Manual:

• Updated Section 2 Responsibilities • Moved procedures for Monitoring Rates from Paragraph 3.8., to Paragraph 4.3.,

“Conduct Cost Monitor Activities” • Modified Paragraph 4.2., to incorporate the need to perform a Risk Assessment during

the Cost Monitoring Planning Phase • Revised Paragraph 4.3., to include language that Contracting Officers should include

Overhead Should Cost Review recommendations in their negotiation objectives and provides a reference to the Overhead Should Cost Review Guidebook

• Added Paragraph 5.8., “Records Management,” for Technical Support to Indirect Costs • Edited Paragraph 6.2., to include the requirement that the Contractor Insurance Pension

Review report may not be released to the contractor except by the cognizant Administrative Contracting Officer


Table of Contents 4

TABLE OF CONTENTS SUMMARY OF CHANGES…………………………………………………………………..…3 SECTION 1: GENERAL ISSUANCE INFORMATION ........................................................... 6 1.1. Applicability ......................................................................................................................... 6 1.2. Policy.................................................................................................................................... 6 SECTION 2: RESPONSIBILITIES ............................................................................................. 7 2.1. Executive Director, Contracts ............................................................................................. 7 2.2. Contract Management Office Commander/Director, Director of DCMA Special Programs

Cost and Pricing Center, Cost and Pricing Regional Command Corporate Administrative Contracting Officer/Divisional Administrative Contracting Officer Group Director ........ 7

2.3. Contract Management Office Contracts Director, Cost and Pricing Regional Command Corporate Administrative Contracting Officer/Divisional Administrative Contracting Officer Group Supervisor, DCMA Special Programs Divisional Administrative Contracting Officer Supervisor .................................................................. .7

2.4. Director, Technical Directorate, Engineering Division.......................................................8 2.5. Director, Regional Hub of Cost and Pricing Regional Command ..................................... 9 2.6. Engineering and Manufacturing Group Chief, Integrated Cost Analysis Group Director . 9 2.7. Technical Supervisor/Lead .................................................................................................. 9

2.8. Technical Support to Indirect Costs Coordinator ................................................................ 9 2.9. Contractor Insurance/Pension Review Team Supervisor ................................................... 9 2.10. Technical Specialist………………………………………………………………..……10

2.11. Functional Specialist…………………………………………………………………….10 2.12. Cognizant Federal Agency Official, Administrative Contracting Officer, Divisional

Administrative Contracting Officer, Corporate Administrative Contracting Officer.......10 2.13. Cost Monitor Specialist…………………………………………………………………10 SECTION 3: FORWARD PRICING RATES .................................................................... 11 3.1. Determine Whether a Forward Pricing Rate Recommendation or Agreement and Cost

Monitoring Program is Required ....................................................................................... 11 3.2. Obtain Contractor’s Proposal and Review for Adequacy ................................................. 12 3.3. Conduct Proposal Analysis ............................................................................................... 13 3.4. Document and Review Prenegotiation Objectives ........................................................... 15 3.5. Establish a Forward Pricing Rate Recommendation or Negotiate Rates ........................ 17 3.6. Document and Review Price Negotiation Memorandum and Issue Rate Agreement ..... 18 3.7. Distribute Rate Agreement, Rate Recommendation and Negotiation Memorandum ...... 19 3.8. Monitor Rates .................................................................................................................... 20 SECTION 4: COST MONITORING ........................................................................................ 21 4.1. Determine Whether Cost Monitoring Program is Required.............................................. 21 4.2. Prepare Cost Monitoring Plan ........................................................................................... 21 4.3. Conduct Cost Monitoring Activities .................................................................................. 27 4.4. Prepare Cost Monitoring Report ....................................................................................... 29 SECTION 5: TECHNICAL SUPPORT TO INDIRECT COSTS ......................................... 32 5.1. Technical Support to Indirect Costs Requests ................................................................. 32 5.2. Receive and Coordinate Technical Support to Indirect Costs Request ............................ 32


Table of Contents 5

5.3. Review Technical Support to Indirect Costs Request ...................................................... 33 5.4. Perform Technical Support to Indirect Costs Analysis ................................................... 34 5.5. Prepare Technical Support to Indirect Costs Report ....................................................... 36 5.6. Provide Negotiation Support ............................................................................................ 38 5.7. Complete Technical Support to Indirect Costs Support ................................................... 39 5.8. Records Management.........................................................................................................39 SECTION 6: CONTRACTOR INSURANCE/PENSION REVIEW ..................................... 40 6.1. Determine the Need for a Contractor Insurance/Pension Review .................................. 40 6.2. Request and Plan a Contractor Insurance/Pension Review ............................................ 41 6.3. Disposition Contractor Insurance/Pension Review Findings .......................................... 42 SECTION 7: RETENTION OF RECORDS ............................................................................. 43 7.1. Requirement to Establish Files ......................................................................................... 43 7.2. Storage, Handling, and Disposal ....................................................................................... 43 7.3. Records Management System ........................................................................................... 44 7.4. Protecting Classified and Controlled Unclassified Information ..................................... 44 GLOSSARY ................................................................................................................................... 45 G.1. Definitions ......................................................................................................................... 45 G.2. Acronyms .......................................................................................................................... 47 REFERENCES ............................................................................................................................... 49


Section 1: General Issuance Information 6

SECTION 1: GENERAL ISSUANCE INFORMATION

1.1. APPLICABILITY. This Manual applies to all DCMA personnel. 1.2. POLICY. It is DCMA policy to support Procuring Activities in negotiating fair and reasonable prices through Forward Pricing Rate Recommendations (FPRR) and Forward Pricing Rate Agreements (FPRA). a. Forward Pricing Rates (FPR). A Forward Pricing Rate Proposal (FPRP) is submitted to the Government by contractors for their rates over a period of time for use in their proposals. The Government has the responsibility to perform timely reviews of contractor rate proposals in order to establish the Government’s negotiation position and to negotiate the FPRs to ensure that contract prices are fair and reasonable.

b. Cost Monitoring (CM). (1) Effective management of contract costs is essential to the efficient and economical performance of Government contracts. Contractors are responsible for managing and controlling their direct and indirect costs; however, DCMA must systematically monitor the management of contractors’ costs to ensure these responsibilities are met in accordance with (IAW) Defense Federal Acquisition Regulation Supplement/Procedures, Guidance and Information DFARS PGI 242.302(a)(S-75)(b). (2) DCMA must establish a Cost Monitoring Program (CMP) for all contractors whose sales to the Government, during the contractor’s next Contractor Fiscal Year (CFY), are expected to exceed $200 million based on costs incurred or negotiated based on projected costs as outlined at DFARS PGI 242.302(a)(S-75)(c)(1)(i)(A). The exceptions are stated in Section 4 of this Manual. c. Technical Support to Indirect Costs (TSI). Provide quality and timely technical assessments to support forward pricing rate and CM efforts. The assessments include recommendations to help determine and obtain fair and reasonable FPRs and provide insight in monitoring contractor’s costs. TSI represents on-demand activities which are performed on a required or as needed basis. d. Contractor Insurance/Pension Review (CIPR). IAW DFARS 242.7301, as the DoD Executive Agency for the performance of all CIPRs, determine the allowability of insurance and pension costs in Government contracts and the need for a CIPR. Administrative Contracting Officers (ACO) and Cost Monitors must follow the requirements of DFARS 242.73, “Contractor Insurance/Pension Review,” and DFARS PGI 242.73, “Contractor Insurance/Pension Review,” when requesting a CIPR. e. Safety. Execute this Manual in a safe, efficient, effective, and ethical manner.


Section 2: Responsibilities 7

SECTION 2: RESPONSIBILITIES

2.1. EXECUTIVE DIRECTOR, CONTRACTS. The Executive Director, Contracts, will: a. Designate a management official to oversee the DCMA FPR process. b. Assure management officials throughout the agency understand the value of the audit process and are responsive to audit findings and recommendations. c. Require periodic internal reviews of the Agency FPR procedures and performance to determine whether ACOs resolve and disposition audit findings and recommendations. 2.2. CONTRACT MANAGEMENT OFFICE COMMANDER/DIRECTOR, DIRECTOR OF DCMA SPECIAL PROGRAMS COST AND PRICING CENTER, COST AND PRICING REGIONAL COMMAND CORPORATE ADMINISTRATIVE CONTRACTING OFFICER/DIVISIONAL ADMINISTRATIVE CONTRACTING OFFICER DIVISION DIRECTOR. Contract Management Office (CMO) Commander/Director, Director of DCMA Special Programs (DCMAS) Cost and Pricing Center, Cost and Pricing Regional Command Corporate Administrative Contracting Officer (CACO)/Divisional Administrative Contracting Officer (DACO) Division Director will: a. Concur or non-concur with the request to establish a CMP for a contractor that does not meet the criteria for a CMP, but where a business need (e.g., significant cost/pricing activity) justifies the establishment of a CMP. The concur or non-concur decision may be delegated no lower than the level of the CMO Contracts Director, DCMAS DACO supervisor, or CACO/DACO Division team supervisor. b. Concur or non-concur with the request of a CMP waiver for a contractor that meets the criteria for a CMP but an alternate course of action is justified (e.g., where the rates for a business unit are negotiated at another site). Provide resources to support a CMP with a CM team as specified in Paragraph 4.2., of this Manual. c. Review and concur/non-concur with the annual CM report. d. Establish delegation authority for approval of quarterly and annual CM reports. e. The Director of DCMAS Cost and Pricing Center or the Director of Cost and Pricing Regional Command CACO/DACO Division will ensure compliance with Section 6 of this Manual. f. The Director of DCMAS Cost and Pricing Center or a delegated official must determine the level of information to be uploaded into Contract Business Analysis Repository (CBAR). 2.3. CONTRACT MANAGEMENT OFFICE CONTRACTS DIRECTOR, COST AND PRICING REGIONAL COMMAND CORPORATE ADMINISTRATIVE CONTRACTING OFFICER/DIVISIONAL ADMINISTRATIVE CONTRACTING



OFFICER DIVISION SUPERVISOR, DCMA SPECIAL PROGRAMS DIVISIONAL ADMINISTRATIVE CONTRACTING OFFICER SUPERVISOR. The CMO Contracts Director, Cost and Pricing Regional Command CACO/DACO Division team supervisor, and DCMAS DACO supervisor will:

a. Review and provide written concurrence or nonconcurrence to the ACO’s written determination related to the establishment/nonestablishment of a FPRR/FPRA and/or CMP IAW Paragraph 3.1.a., of this Manual. b. Review and provide written concurrence or nonconcurrence by signing decisional memorandums. c. Ensure that Boards of Review (BoRs) are properly requested when required. d. Establish a file location to contain the records of all FPRR/FPRA actions IAW Federal Acquisition Regulation (FAR) 4.801(a).

e. Ensure the data in the FPRA eTool and the CBAR eTool is current and accurate and any changes are entered immediately. f. In coordination with the CMO Commander/Director, Director of DCMAS Cost and Pricing Center, or CACO/DACO Division Director, provide resources to support a CM team as specified in Paragraph 4.2., of this Manual. g. Review and concur/non-concur with the annual CM plan. h. Review and concur/non-concur with the quarterly/annual CM report. i. Ensure Defense Contract Audit Agency (DCAA) audit reports and Host Nation audit reports provided in support of a CIPR report are properly resolved and dispositioned. j. Ensure the ACO provides disposition memorandums to DCAA and all contributing functional specialists upon completion. 2.4. DIRECTOR, TECHNICAL DIRECTORATE, ENGINEERING DIVISION. The Director, Technical Directorate, Engineering Division will: a. Serve as the agency’s central point of contact (POC) and advocate for all Technical Pricing Support policy, training, and tools. b. Provide base resources in developing and monitoring policy implementation, identifying and developing training requirements.

c. Identify and develop the tools necessary to conduct the DCMA Technical Pricing Support function.



2.5. DIRECTOR, REGIONAL HUB OF COST AND PRICING REGIONAL COMMAND. Regional hub of Cost and Pricing Regional Command Director will assist the Director of Proposal Pricing in gathering the technical resources necessary to provide contingency support. 2.6. ENGINEERING AND MANUFACTURING GROUP CHIEF (EMGC), INTEGRATED COST ANALYSIS GROUP (ICAG) DIRECTOR. The EMGC and ICAG Director will: a. Manage resources (e.g., technical personnel and workload) to meet Technical Support to Indirect Costs (TSI) taskings. b. Maintain visibility of TSI requests and trends. c. Designate a TSI Coordinator. d. Establish a team environment enabling the CMO to work closely with customers and DCAA as a cohesive government team to analyze costs while minimizing workload redundancy. 2.7. TECHNICAL SUPERVISOR/LEAD. The Technical Supervisor or Lead will: a. Manage the workload of the technical specialists. b. Assign technical specialists to TSI efforts. c. Review and approve technical reports and supporting documentation prior to release to requestor. 2.8. TECHNICAL SUPPORT TO INDIRECT COSTS COORDINATOR. The TSI Coordinator is the focal point for receiving and managing TSI requests. The TSI Coordinator will: a. Perform initial review of request. b. Confirm receipt of request. c. Track the progress of the request. 2.9. CIPR TEAM SUPERVISOR. The Supervisor of the CIPR Team will: a. Establish a schedule to support the FPRR/FPRA and CM. b. Direct any requests for review of insurance and/or defined benefit pension and/or other funded executive or post retirement employee benefit costs of business entities from DoD customers.



c. Review and approve reports prior to issuance of report by the CIPR Team to an ACO or external customer. 2.10. TECHNICAL SPECIALIST. The technical specialist will perform indirect cost control reviews in relation to TSI as described in this Manual. A technical specialist may be an engineer, industrial specialist, or quality assurance representative. 2.11. FUNCTIONAL SPECIALIST. The functional specialist will support indirect cost reviews in relation to Forward Pricing activities and other reviews as needed (e.g., Cost Monitoring, Technical Support to Indirect reviews, Contractor Insurance Pension Reviews, Overhead Should Cost Reviews, etc.). A functional specialist may be a Cost Monitor, Price Cost Analyst, other CMO support (technical specialist), major customers, DCAA auditors, etc. 2.12. COGNIZANT FEDERAL AGENCY OFFICIAL, ADMINISTRATIVE CONTRACTING OFFICER, DIVISIONAL ADMINISTRATIVE CONTRACTING OFFICER, CORPORATE ADMINISTRATIVE CONTRACTING OFFICER (CFAO/ACO/DACO/CACO). The CFAO within DCMA is the ACO/DACO/CACO, hereinafter referred to as ACO. The ACO must: a. Determine the need for an FPRA/FPRR and perform Forward Pricing responsibilities as outlined in FAR 42.1701 and in Section 3 of this Manual.

b. Coordinate with the CMS Supervisors to ensure completion of Cost Monitor Specialist (CMS) duties as referenced in DFARS/PGI 242.302(a)(s-75)(c)(2)(ii)(A-D) and review and submit all reports and plans IAW Section 4 of this Manual.

2.13. COST MONITOR SPECIALIST. The CMS may be any Contract Administration Office (CAO) employee whose function relates to evaluation of contractor performance. The CMS must: a. Assist the ACO with the analysis of the contractor’s rate proposal and monitor actual performance of rates and factors as outlined in Section 3 of this Manual.

b. Perform an array of CM activities to include the development of the annual CM plan including the risk assessment, ensure progress toward completion of the CM plan, and prepare the quarterly and annual CM reports as outlined in Section 4 of this Manual to support forward pricing determinations.


Section 3: Forward Pricing Rates 11

SECTION 3: FORWARD PRICING RATES

3.1. DETERMINE WHETHER A FORWARD PRICING RATE RECOMMENDATION OR AGREEMENT AND COST MONITORING PROGRAM IS REQUIRED. a. The ACO must determine whether an FPRR/FPRA and CMP must be established based on an assessment of contractor sales volume.

(1) The ACO must establish an FPRA or FPRR and CMP (see Section 4 of this Manual) for all contractors whose sales to the Government, during the contractor’s next CFY, are expected to exceed $200 million.

(a) Sales to the Government during the next CFY are determined by the ACO IAW DFARS PGI 242.302(a)(s-75)(c)(1)(i)(A). An exception exists where the ACO makes a written determination that the contractor will not have a significant volume of negotiated Government contract proposals in future periods.

(b) A CMO Contracts Director, a CACO/DACO Division supervisor, or a DCMAS

DACO supervisor must provide written concurrence or nonconcurrence to the ACO’s written determination not to establish an FPRR/FPRA and CMP for a contractor with more than $200 million expected Government sales in the next CFY. (2) The ACO may establish an FPRR/FPRA and CMP (see Section 4 of this Manual) even if the contractor does not meet the criteria for a mandatory FPRR/FPRA and CMP when there is a significant volume of negotiations, customer demand, or a contractor request.

(a) In determining whether to establish an FPRR/FPRA and CMP, the ACO should consider whether the benefits to be derived from an FPRR/FPRA are commensurate with the time and effort to establish and track an FPRR/FPRA IAW FAR 42.1701(a).

(b) A CMO Contracts Director, a CACO/DACO Division supervisor, or a DCMAS

DACO supervisor must serve as approval authority over any ACO written determination to establish an FPRR/FPRA and CMP for a contractor with less than $200 million expected Government sales in the next CFY. (3) When an FPRR/FPRA is not available or establishment of an FPRR/FPRA is not required, the ACO will provide customers with the best information available such as the contractor’s business system status at the time to assist the customers in developing a rate position for negotiation. b. If the ACO makes a determination that an FPRR/FPRA and CMP (see Section 4 of this Manual) is required or permitted, then the FPRR/FPRA record must be created in the FPRA eTool application. A determination that meets the criteria of Paragraphs 3.1.a.(1) or 3.1.a.(2) of this section to require approval from a CMO Contracts Director, a CACO/DACO Division supervisor, or a DCMAS DACO supervisor must be documented in a memorandum and stored IAW with DCMA Instruction (DCMA-INST) 809, “Records Management,” (DCMA-INST 809



to be replaced by DCMA Manual (DCMA-MAN) 4501-04, Volume 1, “Records and Information Management Program”), in the Agency-approved filing system. 3.2. OBTAIN CONTRACTOR’S PROPOSAL AND REVIEW FOR ADEQUACY. a. The ACO will obtain the contractor’s FPRP and require that the cost or pricing data in the proposal meet FAR 42.1701(b) requirements for accuracy, completeness and currency. However, the ACO will not require certification at the time of agreement for data supplied in support of an FPRA or other advance agreements. When an FPRA or other advance agreement is used to price a contract action that requires a certificate, the certificate supporting that contract action must cover the data supplied to support the FPRA or other advance agreements and all other data supporting the action IAW FAR 15.407-3(c). b. The ACO must determine whether data supporting the FPRP is submitted in a form acceptable to the ACO IAW FAR 15.403-5(b)(3). The ACO must use the “Contractor Forward Pricing Rate Proposal Adequacy Checklist” linked in the Resource Page to determine whether the contractor’s FPRP is adequate for the Government to conduct an evaluation. To ensure the proposal is complete, the ACO must request that the contractor complete the Contractor Forward Pricing Rate Proposal Adequacy Checklist and submit it with the forward pricing rate proposal IAW DFARS 215.403-5. The checklist will be retained as part of the official file. The proposal must contain: (1) An explanation of how the rates were derived for each of the out-years so that reasonableness can be determined. For example, flat-lining of the out-year rates with no explanation of why the rates do not change is not adequate. Adjustments to out-year pools and bases should be made based on reasonable sales forecasts and the contractor’s assumptions for changes to major groupings of costs (e.g., variable, semi-variable, and fixed). (2) An appropriate level of documentation with supporting data provided by the contractor. This determination calls for an exercise of judgment by the ACO. The ACO must consider the specific contractor and pending contract awards in determining whether the contractor has provided documentation that adequately supports the contractor’s FPRP. For instance, a contractor may not develop detailed budgetary data because it is impractical for their organization. Also, it is common for a contractor to assert that historical costs are the most appropriate basis to estimate out-year rates. In these cases, the contractor should provide the necessary trend data with appropriate explanations to support a conclusion that historical costs are the most reasonable for forecasting out-year rates. The out-year projections must be supported by the contactor based on Long Range Plans/Strategic Plans. c. If the ACO determines that the contractor’s proposal is inadequate based on the review stated in Paragraph 3.2.b., the ACO must return the proposal to the contractor and request the contractor submit an adequate proposal. The request must identify the nature of the inadequacy so that the contractor will have sufficient information to be able to respond appropriately to the request. The ACO should consider whether the inadequacy in the submitted FPRP indicates a deficiency in the contractor’s estimating system. Where applicable, the ACO must document the



actions taken to obtain adequate cost or pricing data IAW FAR 15.404-2(d) and FAR 15-404-1(c)(2)(v). 3.3. CONDUCT PROPOSAL ANALYSIS. a. The objective of the analysis is to ensure that the FPRR/FPRA is fair and reasonable IAW FAR 15.404-1(a). b. The ACO must use cost analysis to evaluate the reasonableness of individual cost elements when cost or pricing data are required IAW FAR 15.404-1(a)(3) and (4). Cost analysis is the review and evaluation of any of the separate cost elements in a contractor’s proposal to determine a fair and reasonable price or to determine cost realism, and the application of judgment to determine how well the proposed rates represent what the rates of the contract should be, assuming reasonable economy and efficiency IAW FAR 15.404-1(c)(1). The method of cost analysis that can be used by the ACO is included in the “Cost Monitoring Handbook.” The handbook is linked in the Resource Page. c. The ACO may use various cost analysis techniques and procedures to ensure fair and reasonable price IAW FAR 15.404-1(c)(2). Such techniques and procedures include (but are not limited to) the determination of the following areas: (1) The contractor’s basis of estimates are reasonable. (2) The supporting cost or pricing data are current, accurate, and complete as of the date of submission IAW FAR 42.1701(b). (3) The contractor’s estimating practices comply with the contractor’s disclosed or established cost accounting practices. (4) Projected business volume, allocation bases, and indirect costs are reasonable and consistent with contractor and customer business projections. (5) Rate computations are mathematically correct. (6) The proposal is in compliance with the cost principles and procedures in FAR 31.2 and DFARS 231.2 IAW FAR 31.103(a). (7) The contractor’s FPRP is in compliance with, when applicable, the requirements and procedures in 48 CFR Chapter 99, Cost Accounting Standards IAW FAR 15.404-1(c)(2)(iv). (8) Reasonableness of cost or pricing data and the evaluation of cost elements IAW FAR 15.404-1(c)(2)(i): (a) The necessity for, and reasonableness of, proposed costs, including allowances for contingencies.



(b) Projection of the contractor’s cost trends, on the basis of current and historical cost data. (c) Reasonableness of estimates generated by appropriately calibrated and validated parametric models or cost-estimating relationships. (d) The application of audited or negotiated indirect cost rates, labor rates, and cost of money or other factors. (9) The evaluation of the effect of the contractor’s current practices on future costs. In conducting this evaluation, the ACO will ensure that the effects of inefficient or uneconomical past practices are not projected into the future IAW FAR 15.404-1(c)(2)(ii). (10) The comparison of costs proposed by the contractor for individual cost elements with the following data is IAW FAR 15.404-1(c)(2)(iii): (a) Actual costs previously incurred by the same contractor. (b) Previous cost estimates from the contractor or from other offerors for the same or similar items. (c) Other cost estimates received in response to the Government’s request. (d) Independent Government cost estimates by technical personnel. (e) Forecasts of planned expenditures. (11) The review of cost elements from the “should-cost” point of view, if applicable, to evaluate significant indirect cost elements in-depth, and identify and recommend corrective actions regarding inefficient and uneconomical practices IAW FAR 15.407-4(c). d. The ACO will determine the need for audit and/or technical support (see Sections 4, 5, and 6 of this Manual). (1) DCAA Audit: (a) Request. The ACO, or the CMS as delegated by the ACO, will request a DCAA audit when the contractor submits a rate proposal or proposal updates and the ACO determines that the support from DCAA is necessary for negotiation. The ACO must tailor the audit requests to reflect the minimum essential supplementary information needed to conduct a technical, cost or pricing analysis IAW FAR 15.404-2(a)(1). If the ACO determines that a DCAA audit is not necessary because they have the capability to conduct a thorough review, they should justify the decision in the Prenegotiation Objectives Memorandum (PNOM). While awaiting the results of the audit and if a delay in issuing the audit report is anticipated, the ACO must continue to analyze and develop a negotiation objective and proceed to establish an FPRR as a minimum.



(b) Receipt of a DCAA Audit. 1. Upon receipt of a DCAA audit report, the ACO must review the audit findings, determine whether the current FPRR/FPRA requires revision, issue a revised FPRR within 5 business days, and continue to work toward negotiating an FPRA if appropriate. In this case, the ACO can issue the FPRR with a memorandum for record (MFR) and the historical rate data, rather than with a PNOM. The DCAA position on FPRP must be reflected in developing the ACO’s FPRR position. The ACO must address DCAA unsupported costs and unresolved costs in either the PNOM or Price Negotiation Memorandum (PNM). 2. If the ACO deviates from the DCAA audit position, the ACO will discuss these issues with the DCAA auditor to obtain a joint resolution. If a joint resolution cannot be reached on significant issues and DCAA’s management requests DCMA management review of the ACO’s position, DCMA review will be accomplished IAW BoR General Practice located on the main Resource Page of DCMA-INST 2201, “Indirect Cost Control,” prior to the issuance of the FPRR/FPRA. The ACO’s PNOM must document all discussions with DCAA, mutual resolutions, and/or differences of opinion. If major issues are escalated to DCMA management to assist in their resolution, the MFR or PNOM must document the results and conclusions of this management review process. (2) Reviews from other functional specialists, including but not limited to, DCMA Price/Cost Analyst, Should-Cost Reviews, pension/insurance reviews (see Section 6 of this Manual), engineering (see Section 5 of this Manual), industrial specialists, or legal review should be obtained where subject matter expertise is expected to be beneficial to the development of rates. The ACO must be responsible for determining the need for the reviews and audit. (3) Program Office Support. Consultation with program offices may be needed to obtain input on program issues, such as expected work schedules and current status of contract awards to which the contractor may not be privy. This process should be followed to validate the accuracy and completeness of the contractor’s proposed business base. The ACOs will review sales data and consider how Long Range Plan/Contractor Sales forecasts impact the indirect rate bases when recommending/negotiating FPR. ACOs must collect sales data by contacting customers. The ACOs must incorporate the result of this business base forecast review into their rate analysis. (4) Agencies performing audits of FPRPs by foreign contractors outside the United States must adhere to audit practices established by their respective Host Nation Agreements with the U.S. Government and/or locally established practices. In those instances where practices are different from requirements set forth in this Manual, the ACO must document the FPRR/FPRA file accordingly. 3.4. DOCUMENT AND REVIEW PRENEGOTIATION OBJECTIVES. a. Preparation and Approval. The PNOM and MFR must be prepared and reviewed prior to negotiation of an FPRA or issuance of an FPRR IAW FAR 15.406-1(b).



(1) The ACO will use the PNOM to negotiate an FPRA and document the FPRR. (2) The PNOM approval requirements must be IAW the BoR matrix. (3) In the case where the ACO issues an FPRR without cost analysis such as when

DCAA issues an audit report, the ACO must issue a revised FPRR within 5 business days of the date the ACO receives the audit report. In that case, the ACO can issue the FPRR without a PNOM but with an MFR and the historical rate data. In this situation, the ACO must upload the MFR and historical rate data in CBAR. Within 90 calendar days from the FPRR date, the MFR must be replaced by a PNOM or ratified by a CMO Contracts Director, a CACO/DACO Division supervisor, or a DCMAS DACO supervisor when the ACO intends to issue another FPRR without a PNOM. b. Format and Required Documentation. With exception of DCMAS classified information is not to be uploaded to CBAR. The ACO must use the PNOM format located on this Manual’s Resource Page and upload the signed and reviewed PNOM into CBAR through the FPRA eTool. The scope and depth of the documentation and analysis supporting the PNOM should be directly related to the dollar value, importance, and complexity of the contractor’s overall rates and individual elements of cost. Also, the depth of the FPRR PNOM documentation depends on the stage at which the FPRR is developed. The PNOM must include, but is not limited to, the following documentation as appropriate: (1) An affirmative statement that the ACO agreed or disagreed with DCAA audit report or other specialist, cost monitor (see Section 4 of this Manual), legal, engineering (see Section 5 of this Manual), pension/insurance (see Section 6 of this Manual, etc.) findings and recommendations. The ACO must demonstrate how such field pricing assistance, including audit, was used in establishing the recommended rates or negotiated rates IAW FAR 15.404-2(c). (2) Rationale to support agreement or disagreement with any audit or other specialist’s recommendation. The rationale must demonstrate that the ACO has considered all appropriate FAR, DFARS requirements, and interpretive guidance in DCMA Instructions and Manuals related to the issues raised or questioned by DCAA and other specialists (e.g., cost principles, cost accounting standards, Overhead Should-Cost Reviews). ACOs must document their analyses to show that the rates are well supported. This documentation is required even when the ACO agrees with the contractor’s proposed rates and even if a DCAA audit report is not received in time. In cases where the ACO receives an Overhead Should-Cost report, the ACO should review the Overhead Should Cost Report recommendation in preparing their negotiation objectives. c. The ACO will invite the cognizant contract auditor and contracting officers having a significant interest to participate in developing a Government objective and in negotiations IAW FAR 42.1701(b). Documentation of the invitation must be kept in the ACO’s file. d. The ACO and reviewing officials must use the FPRR/FPRA Review Checklist, linked in the Resource Page, to confirm whether the ACO conducted the necessary review processes and documented all processes. The FPRR/FPRA Review Checklist in this Paragraph and Contractor



Forward Pricing Rate Proposal Adequacy Checklist in Paragraph 3.2.b.(1) must be included in the PNOM package. e. The data from a historical rate template, located on the Resource Page, should be incorporated by ACOs in the PNOM at CMP sites. This template must be uploaded into CBAR through the FPRA eTool, and whenever there are any subsequent negotiation position changes. The template can be adjusted as discussed in Paragraph 4.3.c.(5) in this Manual. 3.5. ESTABLISH A FPRR OR NEGOTIATE RATES. a. Based on proposal analysis, the ACO must issue an FPRR to be in effect until an FPRA is issued or another FPRR is issued. The FPRR must be issued within 30 calendar days of receipt of an adequate proposal and available at all times when rates are required. b. The ACO should negotiate rates as soon as possible. Where supported by CM planned activities and/or an ICAG, the ACO should negotiate rates within 60 calendar days from receipt of an adequate proposal. Even if the ACO could not obtain support from cost monitors and/or an ICAG, the ACO should negotiate rates within 90 calendar days. An FPRR/FPRA can be established without a DCAA audit report, when DCAA cannot meet the ACO’s requested due date, a DCAA audit report is otherwise not available, or a DCAA audit is not requested due to DCMA’s in-house capabilities and risk assessment. c. The FPRA must establish specific terms and conditions covering expiration, application, and data submission requirements to facilitate monitoring validity of the rates. The agreement must provide for cancellation at the option of either party and must require the contractor to submit to the ACO and to the cognizant contract auditor immediate notice of any significant changes in cost or pricing data used to support the FPRA IAW FAR 42.1701(c). d. If an FPRA that can be applied to all upcoming pricing actions is not achievable, the ACO may consider the use of an FPRA with expressly defined limitations (see FPRA template located on the Resource Page for this Manual). The limited FPRA is an FPRA that may apply to pricing actions under a certain dollar limit or to certain types of acquisitions, like spare parts procurement, over and above pricing actions, or overhaul and repair. The limited FPRA should be suggested by the ACO for high volume, low dollar negotiations where extended discussion of rate differences is not practical or cost effective. The limits of tailoring an FPRA could include, but are not limited to: (1) Length of time; e.g., all negotiations with performance in calendar year 2XXX and 2XXX. (2) Dollar value of the negotiation; e.g., negotiations less than $500,000. (3) Types of acquisitions; e.g., spare and repair parts, over and above pricing action, or overhaul and repair.



e. If an FPRA is not achieved, the ACO must unilaterally establish an updated FPRR. The FPRR should include the recommended rates and the specific bases to which the rates apply. The FPRR can be used for billing rates as well and the ACO must include mention of this in the FPRR memorandum. f. The ACO will enter the details of the FPRR/FPRA in the FPR eTool application and in the CBAR eTool and update the data as appropriate. All documents uploaded in CBAR must be appropriately marked IAW DCMA-MAN 3301-08, “Information Security.” See Section 7 of this Manual for more details. 3.6. DOCUMENT AND REVIEW PNM AND ISSUE RATE AGREEMENT. a. The PNM must be prepared IAW FAR 15.406-3. The ACO must use the PNM template on the Resource Page of this Manual and upload the PNM to CBAR. b. The PNM details must include the 11 elements listed at FAR 15.406-3, as well as: (1) Address whether the ACO sustained the positions by cost element as identified in the PNOM. For any prenegotiation positions the ACO does not sustain, the ACO must support the positions with rationale based on additional information that became available during negotiations. (2) State which cost and pricing data provided by the contractor were relied upon in reaching settlement. A certificate of current cost and pricing data is not required for rates at the time of negotiation. c. When meeting BoR criteria, the ACO must obtain BoR review of the PNM IAW BoR General Practice located on the main Resource Page of DCMA-INST 2201. The ACO may request a waiver for PNM review IAW BoR General Practice located on the main Resource Page of DCMA-INST 2201. During the PNOM review process, the BoR may determine whether the waiver request should be granted or denied in order to expedite the establishment of an FPRA. d. If agreement is achieved, the ACO must establish an FPRA IAW FAR 42.1701. An FPRA template is located on the Resource Page. The FPRA, whether full or limited, will include, but is not limited to: (1) The agreed upon rates. (2) Bases to which the rates apply. (3) Specific terms and conditions covering the effective date and expiration date of the FPRA, notification requirements, application, and submission of data requirements to facilitate monitoring to ensure the validity of the rates IAW FAR 42.1701. (4) Defined limits of the rates applicability if they are only agreed to be used for specific types of acquisitions (e.g., spare parts or pricing cases under a certain dollar amount).



(5) A requirement for the contractor to provide immediate notification of changes to projected sales forecasts and other business conditions that affect the base assumptions used to establish the FPRA in the out-years. (6) Other reports the contractor will be required to provide the ACO to permit adequate rate monitoring. (7) The frequency of the contractor’s required reporting and analysis IAW FAR 42.1701. (8) A requirement for the contractor to compare its actual rates with the FPRA and immediately inform the ACO of any significant change in cost or pricing data used to support the FPRA IAW FAR 42.1701. (9) A cancellation provision at the option of either party. e. If an FPRA is invalidated, the contractor should submit and negotiate a new proposal to reflect the changed conditions. If an FPRA has not been established or has been invalidated, the ACO will issue an FPRR to buying activities with documentation to assist negotiators. In the absence of an FPRA or an approved FPRR, the ACO will include support for rates utilized IAW FAR 42.1701(d). f. The ACO may negotiate continuous updates to the FPRA. The FPRA will include specific terms and conditions covering notification, application, and data requirements for systematic monitoring to ensure the validity of the rates IAW FAR 42.1701(e). The continuous updates method of negotiating an FPRA can only be implemented where a CMP is established and performed. 3.7. DISTRIBUTE RATE AGREEMENT, RATE RECOMMENDATION, AND NEGOTIATION MEMORANDUM. a. The ACO must distribute a copy of the signed rate agreement to the contractor, enter required data into the FPRA eTool and CBAR, and confirm the accuracy of data in CBAR. b. The ACO must distribute signed copies of the rate agreement and negotiation memorandum or rate recommendation to the cognizant DCAA auditor and all contracting offices that are known to be affected by the FPRA rates. The DoD customers will use the FPRA unless waived on a case-by-case basis by the head of the customer’s contracting activity IAW DFARS 215.407-3. c. Billing rates must be revised IAW FAR 42.704. The FPRA or FPRR used for the billing rates for the current year must be as close as possible to the final indirect cost rates anticipated for the contractor’s fiscal period, as adjusted for any unallowable costs, to preclude overbilling or underbilling. Once established, billing rates may be proactively or retroactively revised by mutual agreement of the ACO at either party’s request to prevent substantial overpayment or underpayment. The elements of indirect cost and the base or bases used in computing billing



rates must not be construed as determinative of the indirect costs to be distributed or of the bases of distribution to be used in the final settlement IAW FAR 42.704(d). d. The ACO must ensure that rate documents are properly marked with contractor proprietary markings and identified as Controlled Unclassified Information (CUI) as appropriate. See Paragraph 7.4 of this Manual for more details. e. FPRRs will be provided to the contractor unless the contracting officer has documented the reason why release is not in the Government's best interest. f. The ACO must ensure that the taxonomy used to identify the files will allow for clear identification and retrieval IAW DCMA-INST 809 (DCMA-INST 809 to be replaced by DCMA-MAN 4501-04, Volume 1), in either an Agency-approved location, or in a location designated by a CMO Contracts Director, a CACO/DACO Division supervisor, or a DCMAS DACO supervisor. FPRA eTools and CBAR must be updated as well. 3.8. MONITOR RATES. The ACO or CMS must monitor an established FPRA and document the monitoring process IAW Paragraph 4.3., of this Manual. If an FPRA is established, it must be monitored and documented IAW Paragraph 4.3., of this Manual to ensure the validity of the rates regardless of whether a CMP is required.


Section 4: Cost Monitoring 21

SECTION 4: COST MONITORING

4.1. DETERMINE WHETHER A CMP IS REQUIRED. Reference Paragraph 3.1., of this Manual. 4.2. PREPARE CM PLAN. a. Develop CM Plan. Once the ACO determines to establish the CMP for a contractor, a CMS with the assistance of the functional specialists must develop the CM plan annually. The CM plan is a strategy for monitoring, reviewing, negotiating, and approving contractor’s direct and indirect rates, business systems, corrective actions to deficient processes, and cost controls by coordinating the capabilities of DCMA, DCAA, and other Government representatives in an effort to reduce unreasonable, erroneous, or improper costs to Government contracts IAW DFARS PGI 242.302(a)(S-75)(d)(1). (1) Risk Assessment. It is critical to perform risk assessment of the contractor’s operations and resulting costs during the CM planning phase. The planning phase directs resource allocation in the most effective manner to mitigate the Government risk and to result in the largest returns. During the risk assessment, the CMS must consider and document the following elements in the CM plan: (a) A description of the corporate structure and the relationship of the business unit to legal entities to which it reports and entities that report to it. (b) A summary of the business unit’s major products and customers in the context of the larger corporation. (c) An organization chart for the business unit’s top management. (d) The history of sales and projected sales pertaining to each major U.S. Government customer and the percentage of fixed price versus flexibly priced work. (e) A narrative summary of significant issues for each year based on government participation (e.g., accounting changes, major contract awards, potential contract awards and estimated possibility of winning award, mergers, strikes, and major economic changes). (f) Any information unique to the contractor that would be important to know prior to award of a contract. (g) For additional information on Risk Assessment during the CM planning phase, reference the Cost Monitoring Guidance document located on the DCMA-MAN 2201-01 Resource Page.



(2) Functional Specialist Reviews. The CM plan requires participation of the functional specialists for all CM phases. (a) In September of each year with the due date on October 1st, the CMS request input from the functional specialists in order to determine potential high and moderate risk areas. The CMS must prioritize functional reviews based on the significance of the issues presented by functional specialists, and materiality of impact on the contractor’s operations as identified in the risk assessment. (b) The functional review responsibilities will be determined during the coordination phase of the CM plan, except when the DFARS makes a specific organizational assignment. For example, DFARS 244.301 makes the ACO responsible for initiating contractor purchasing system reviews and DFARS 215.407-5-70(c)(3) prescribes that DCAA is responsible for leading estimating system reviews on behalf of the ACO IAW DFARS PGI 242.302(a)(S-75)(d)(2)(iii). The CM plan must identify the organizations having the primary responsibility for performing the reviews IAW DFARS PGI 242.302(a)(S-75)(d)(2)(ii). (c) The CMS must document the coordination with DCAA and functional specialists for planned activities to preclude the duplication of effort. 1. In preparation of a CM plan, the ACO should have discussions with DCAA about the assistance that they can provide by performing portions of the CM plan and related analyses IAW DFARS PGI 242.302(a)(S-75)(c)(3). After discussions and agreement on assigned portions of the plan, the ACO can tailor requests to DCAA to reflect the minimum essential supplementary information needed to conduct a technical, cost or pricing analysis IAW FAR 15.404-2(a)(1). The FPRR/FPRA Review Checklist should be used to determine the areas DCAA or DCMA will perform during the CM activities. The result of the agreement must be included in the CM plan. 2. Due to DCAA’s audit planning starting in July of every year, by July 1st, the ACO and/or CMS must meet with DCAA to develop the planned FPR work and timing of the work to be completed by both parties. The “agreed to” plan and timing must be included in the CM plan. The coordination with DCAA should be based on the updated risk assessment which is the result of continuous CM activities. (d) The CMS should document each planned functional review using the information memorandum format and address the following:

• Objective • Problem statement • Background • Names of personnel assigned to lead and support the review • Planned start date, duration, and completion date



(3) FPRR/FPRA Development. The CM plan must include a strategy for reviewing, negotiating, and monitoring estimated costs or rates such as indirect overhead rate expense pools, bases, direct labor pools, and other rates and factors. (a) The CM plan must require a test of the validity of the current FPRR/FPRA on a periodic basis, but not less than quarterly. The CMS must identify significant high dollar/volume or sensitive item indicators for tracking and compare the actual costs with the estimated costs by significant overhead cost elements. The CMS must also identify significant business base and pool estimates for out-year rates (typically 3 to 5 years) and evaluate all current information that may have an impact on the out-year estimates, such as new contracts or cancelled contracts and their impact on the out-year base estimates. The CMS must use variance analyses to explain the differences between actual and estimated costs and address any significant variance with the contractor. The CMS and the contractor should develop thresholds for significant variances. In the absence of agreement with the contractor to identify the impact due to rate changes, the CMS may consider using before and after wrap rates also called fully burdened labor rates, which include the contractor’s direct labor wage rate, overhead costs rate and other cost rates. If the contractor fails to take timely corrective action for any unjustified variances, the CMS must recommend that the ACO cancel the FPRR/FPRA, modify the FPRR/FPRA in part, or establish a new FPRR/FPRA. (b) In the preparation of the CM plan for FPRR/FPRA development, the ACO or assigned CMS should use the FPRR/FPRA Review Checklist which is located on the Resource Page as a planning tool to identify the cost analysis procedures considered necessary based on the risk assessment stated in Paragraph 4.2.a.(4). The CMS and ACO should have discussions with functional team members, including DCAA and other functional specialists, about the magnitude and complexity of the required procedures and should assign each procedure to the responsible functional team member IAW DFARS PGI 242.302(a)(S-75)(c)(3) and the risk assessment. The plan should include a preliminary milestone plan identifying the timing required for cost analysis to be completed to support the establishment of the FPRR/FPRA. (c) The ACO/CMS must coordinate with DCAA and other functional team members to determine the monitoring procedures DCAA or DCMA will perform during the CM process. The result of the agreement will be included in the CM plan. The work performed by the CMS and information submitted to DCMA by the contractor should be shared with DCAA, in order to eliminate duplication in monitoring of contractor’s costs. (d) When the ACO requests an audit on individual expense accounts of the FPRP, the ACO should communicate with DCAA about risk factors and concerns with the requested expense accounts and how these concerns fit into the overall coordinated plan to achieve the Government objective on FPR. DCAA, however, may conclude that performing procedures designed to address the risks on an individual expense account are not sufficient to support an audit opinion on the contractor’s assertion in the FPRP. In this instance, the ACO should discuss non audit procedures that DCAA can provide as a means of seeking assistance without employing formal audit procedures. If DCAA makes a determination that an audit of the FPRP (not an audit of individual accounts) is necessary to support a significant price proposal effort, or to address significant risks with the FPRP, the ACO must request DCAA prioritize the work for



the areas of specified risk and to communicate the result of work before release of the audit report. This will ensure that the ACO has the information essential in developing the Government objective and preparing for negotiations. (4) Final Overhead Rates Settlement. The CM plan must list the contractor final overhead rates to be settled during the period (DCMA-MAN 2201-03, “Final Indirect Cost Rates”). (5) Rate Monitoring Strategy. The CM plan must identify the rate monitoring activities that will be performed on a routine basis during the next reporting period, to include those activities addressed in Paragraph 4.3., of this Manual. (6) Contractor Business Systems. The CM plan must include the status of contractor business systems under the ACO’s cognizance. For all contractor business systems that have not been evaluated within the past 3 years, the CM plan must include a strategy for performing current reviews and pursuing the process for approving or disapproving the systems IAW DFARS 242.70 and DCMA-MAN 2301-01, “Contractor Business Systems.” This strategy should be coordinated with DCAA because contractor business systems are normally audited by DCAA (accounting system, estimating system, and material management). The strategy should also be coordinated with appropriate DCMA specialists for the three remaining contractor business systems: earned value management system, purchasing system, and property management system. (7) Cost Accounting Standards (CAS). The CM plan must include the status of the contractor’s current disclosure statement in adequacy and compliance as well as any noncompliance with the CAS or the contractor’s disclosed practices. Also, the CM plan must include a strategy for resolving open issues with CAS, such as obtaining and resolving cost impact statements, and making final determinations on non-compliances with CAS or disclosed practices. (8) Independent Research and Development/Bid and Proposal (IR&D/B&P). The CMS must conduct a separate review in conjunction with the FPRP review to determine whether proposed IR&D/B&P costs are limited to those for projects that are of potential interest to DoD, including activities stated in DFARS 231.205-18(c). The CMS must also provide the ACO with any relevant information as to whether the contractor complied with the DFARS 231.205-18(c)(iii)(C) requirement to report certain IR&D costs to Defense Technical Information Center (DTIC). For a major contractor’s annual IR&D costs to be allowable, the IR&D projects generating the costs must be reported to DTIC. If the CMS determines that the technical support is necessary, the request for technical support must be made IAW Section 5 of this Manual. (9) Advance Agreements. The CMS must review the strategy, purpose, and intended outcome for entering into, amending or monitoring advance agreement(s) during the reporting period IAW FAR 31.109.



(10) Contractor Cost Reduction or Savings Initiatives. The CMS must review the contractor’s strategy for influencing and monitoring cost reductions or savings initiatives to ensure that associated cost reductions or savings are included in the FPR. b. Selecting CM Activities. The CMS selects the activities for the CM plan in consultation with the ACO. To ensure all Government interests are considered in the selection, the CMS should invite ACOs, DCAA, and other interested Government representatives to a meeting before the beginning of each Government fiscal year to identify and prioritize the areas to be reviewed during the coming year to ensure a fully communicated Government CM plan. The CMS should consider the following data and assign primary responsibilities in the selection process IAW DFARS PGI 242.302(a)(S-75)(d)(3)(ii): (1) Contractor forecasts for the coming years supporting direct and indirect costs by functional centers of its cost control system and the results of the latest survey performed of such systems. (2) Organizational charts for the contractor’s entire operation. (3) Outline of the contractor’s accounting system showing the flow of costs by function. (4) Determination of Government participation in the dollars attributable to the operations and cost accounts under consideration. (5) List of recent reviews and/or audits performed by DCMA, DCAA, and other Government representatives; list should show outstanding weakness and deficiencies in the contractor’s operations that will be considered for follow-up reviews or audits. (6) Evidence of contractor under-or over-staffing. (7) Significant departures from established contractor productivity standards. (8) Major financial variances from forecasts in prior years. (9) Evidences of idle or under-used capacity. (10) Visits or audit plans scheduled by other Government organizations and identified to the CMS. (11) Significant information or business changes which could have an adverse effect or cause a significant change to the contractor’s management of contract costs. c. Prioritizing CM Plan. The CMS should prioritize the CM plan, based on a risk analysis, to review the contractor activity by considering IAW DFARS PGI 242.302(a)(S-75)(d)(4)(i): (1) The extent of competition in awarded contracts.



(2) The contractor’s operating methods. (3) The nature of the work. (4) Acquisition cycle stage. (5) Business and industry practices. (6) Types of contracts involved. (7) Degree of technical and financial risk. (8) Previously reported findings and deficiencies. (9) Ratio of Government/commercial work. (10) Significant changes in the level (dollars) of the contractor’s work and backlog. (11) The extent performance efficiencies have been previously demonstrated. d. Establish CM Team. The ACO must establish a CM team based on the approved CM plan and staffing resources approved by the CMO Commander/Director, the CACO/DACO Division Director, or Director of DCMAS Cost and Pricing Center. (1) The CM team is a group of functional specialists under the leadership of the ACO. The team membership must include the ACO and CMSs along with other support personnel as identified in the CM plan. The ACO can add other CM team members as needed to support CM activity, special reviews, or efforts performed outside of the CM team to review high-risk areas. (2) The CMS may invite the contractor to CM key functions and activities. e. Submission and Approval/Disapproval of CM Plan. (1) The CMS must submit the CM plan to the ACO for review no later than October 22nd. (2) The ACO must submit the CM plan to the CMO Contracts Director, DCMAS DACO supervisor, or CACO/DACO Division team supervisor through the CACO, if applicable, for review and approval no later than November 1st. (3) The CMO Commander/Director, the CACO/DACO Division Director of Cost and Pricing Regional Command or Director of DCMAS Cost and Pricing Center must concur or non-concur the CM plan within 15 calendar days of the submission, but not later than November 16th. The Director of the CACO/DACO Division, CMO Commander/Director, or Director of DCMAS Cost and Pricing Center may delegate management concurrence or non-concurrence no lower than the first line supervisor.



f. CM Plan Template. The CM plan must be prepared IAW the DFARS PGI 242.302(a)(S-75)(d) and Section 4 of this Manual. The Resource Page contains a link to an annual CM plan template which may be used to assist in the preparation of the annual CM plan. 4.3. CONDUCT CM ACTIVITIES. a. Review and Analysis Responsibilities. The CM team must conduct CM IAW the CM plan IAW DFARS PGI 242.302(a)(S-75)(d)(6); (1) The functional specialists and DCAA auditor perform functional reviews and audits as scheduled IAW the CM plan. (2) The ACO should promote open communications between the CM team and contractor personnel.

(3) The ACO should hold interim meetings with the contractor as necessary to clarify information and an exit conference at the conclusion of reviews.

(4) The CMS prepares reports at the conclusion of reviews and the ACO determines whether a Government review or audit report will be provided to a contractor. The ACO should confer with legal counsel if there are questions concerning release. (5) The CMS prepares reports on the results of the CMS analysis and monitoring of the contractor’s current and out-year rates and factors, which should address the causes for significant deviations from historical and negotiated FPR and factors. b. The ACO or CMS must establish a documented schedule to monitor the rates which includes the requirement to compare and analyze: (1) The contractor’s actual rates versus the FPRA or FPRR. (2) Updated sales forecasts and changed base assumptions that affect the data used to establish the FPR or recommendations for the out-years. (3) Any other reports the contractor will be required to provide the ACO to permit adequate rate monitoring (e.g., direct labor rates, indirect expenses, and sales forecasts). c. An FPRR/FPRA may require frequent updates to remain accurate, complete, and current. An FPRR/FPRA may require revision: (1) When contractors are required to submit certified cost and pricing data in support of contract and contract modification proposals, they are certifying that their FPRP rates are current, accurate, and complete as of the date of the contract proposal submission. Common reasons why contractor FPRPs are revised include changes in the business base forecast, internal/external restructuring, accounting changes, union negotiations/contracts, actual



salary/wage increases, Cost Reduction Initiatives (CRI), mergers, acquisitions, and/or the review of actual incurred, allowable costs. (a) Upon receipt of a contractor FPRP, the ACO must perform a preliminary review of the updated rate estimates to determine if the current FPRR/FPRA needs to be revised in order to protect the Government’s interest. If the rates require revision, the ACO will formulate a revised position, and document that position within an MFR or PNOM. See procedure in Paragraph 3.5.a., in this Manual. (b) The ACO will then proceed with an in-depth review of the proposal. (2) As a result of CM activities, including monitoring of the contractor actuals and incurred pool and base costs, the ACO may need to update the FPRR/FPRA positions to protect the Government’s interest. The ACO must review the documented results of these activities to decide if the current FPRR/FPRA position requires updating. Conditions that may affect the FPRA’s validity must be reported promptly to the ACO. If the ACO determines that a changed condition invalidates the agreement, the ACO must notify all interested parties of the extent of its effect and the status of efforts to establish a revised FPRA. If rates require revision, the ACO decision and resulting updated rates must be documented within a PNOM. If rates do not require revision, the ACO’s review and decision not to update the current FPRR/FPRA will be documented, and this written documentation must be maintained in the CM workload files or contract file if data is classified. (3) Upon receipt of a DCMA Overhead Should-Cost report, the ACO must determine whether to revise the current FPRR in order to coincide with the Overhead Should-Cost recommended rates. Contracting Officers should include the Overhead Should Cost Review recommendations in their negotiation objectives. Refer to the Overhead Should Cost Review Guidebook located on the main Resource Page of the Indirect Cost Control Capability (DCMA INST 2201) for information on Overhead Should Cost Reviews. Subsequently, FPRR rates should be updated again as DCMA Should-Cost findings are resolved IAW DFARS PGI 215.407-4. Where there is an FPRA in place, the ACO must attempt to negotiate a revised FPRA, considering the results of the Should-Cost Review. (4) Upon receipt of an FPRR/FPRA position that addresses the costs allocated from other contractor business segments, service centers, and/or corporate entities, the ACO must review the position and establish a FPRR, if necessary, within 14 business days reflecting the FPRR/FPRA received. Then, the ACO will proceed to negotiate a revision to the FPRA. If the ACO detects deficiencies in the FPRR/FPRA position, the ACO will discuss these issues with the ACO counterparts who provided the position. If a joint resolution cannot be attained on significant issues, the issue will be elevated to the next higher level of management for final resolution. The ACO’s PNOM must document all discussions, mutual resolutions, and/or differences of opinion. (5) The CMS must utilize a historical rate data template located on the Resource Page to record the changes in elements affecting FPR. The template must be loaded in CBAR and kept current to reflect changes in rate structures. If the CMS cannot use the template because the



contractor’s rate structure is significantly different from the rate structure embedded in the template, the CMS may develop or change the format of the workbook. The change of format or development of a new format must be approved by the CMO Contracts Director, DCMAS DACO supervisor, or CACO/DACO Division team supervisor. When disclosure to the public of data in the template would be expected to cause a foreseeable harm to an interest protected by one or more provisions of the Freedom of Information Act (FOIA), the template should be properly marked as CUI as appropriate. See Paragraph 7.4., of this Manual for more details. d. The CMO Contracts Director, DCMAS DACO supervisor, or CACO/DACO Division team supervisor will ensure that the CM activities are executed as planned. If the CM activity required a BoR as part of the approval process, refer to BoR General Practice located on the main Resource Page of DCMA-INST 2201. e. The CMO Contracts Director, DCMAS DACO supervisor, or CACO/DACO Division team supervisor must review and concur or non-concur any amendments or deviations to the CM plan. 4.4. PREPARE CM REPORT. a. Prepare Quarterly CM Report. (1) The quarterly CM report is a culmination of the Government activities performed during the preceding quarter. The purpose of Quarterly CM is to document all Government efforts to conduct and maintain a formal monitoring program of contractor policies, procedures, and practices for controlling costs charged to Government contracts. The Quarterly CM also helps the ACO continue preparing the annual CM report. (2) The quarterly CM report must be in the same format as the annual CM report. The quarterly CM report must be cumulative from the first quarter leading to the final annual CM report. If the CFY is not the same as the Government’s fiscal year, the CMO Contracts Director, DCMAS DACO supervisor, or CACO/DACO Division team supervisor, may require the quarterly report in line with the end of the CFY to be prepared with the same detail as an annual CM report. (3) Submission and approval of quarterly CM report. (a) The CMS will prepare the quarterly CM report and submit it to the ACO review no later than 10 calendar days after the end of the quarter. (b) The approval process for quarterly CM reports is at the discretion of the CMO Commander/Director, Director of DCMAS Cost and Pricing Center, or CACO/DACO Division Director. The approval process can be delegated to the CMO Contracts Director, DCMAS DACO supervisor, or CACO/DACO first line supervisor. The approval/disapproval of quarterly CM report must occur within 21 calendar days after the end of the quarter.



(c) The Annual CM report, described in Paragraph 4.4.b., will be submitted in lieu of a fourth quarter CM report. (4) The Resource Page contains a link to an annual CM report template to assist in preparation of the quarterly CM report.

b. Prepare Annual CM Report. (1) The annual CM report is a culmination of the Government activities performed during the Government’s fiscal year in an effort to conduct and maintain a formal monitoring program of contractor policies, procedures, and practices for controlling costs charged to Government contracts; IAW DFARS PGI 242.302(a)(S-75)(e)(1). (2) Contents of the Report. The annual CM report should include IAW DFARS PGI 242.302(a)(S-75)(e)(2): (a) A brief introduction of the contractor and the products and/or services it provides to the Government. (b) A summary of each functional review and DCAA audit completed during the reporting period along with any deviations from the CM plan. The summary needs to include confirmation that the results of all functional reviews and DCAA audits are being addressed. (c) Details of functional reviews that were not completed during the reporting period and justification as to why they were not completed. (d) Highlights of open deficiencies, corrected deficiencies, and any newly reported deficiencies. (e) The current status of all final, billing, and FPRs. (f) Summary and reference of DCAA audit reports related to CM activities. (g) Details of all FPRAs and FPRRs made during the period and any significant impediments to rate negotiation. The CMS must identify significant business base and pool estimates for out-year rates (typically 3 to 5 years) and evaluate all current information that may have an impact on the out-year estimates. (h) Details of all advance agreements signed, modified, or canceled during the period; FAR 31.109. (i) A list of CFY overhead rates settled during the period and any significant issues. (j) All attempts to incorporate cost reduction or savings activities into the FPRR/FPRA and the impact of the activity on rates and factors.



(k) Any significant impacts to Acquisition Category (ACAT) I programs during the reporting period based on the rate monitoring activities and functional reviews. (l) The current status of each business system and whether it is approved or disapproved and the last time it was audited or reviewed. (m) The current status of CAS disclosure statement audits and any open issues relating to the CAS. (n) The results of the IR&D and B&P review for the reporting period. (3) Submission and approval of annual CM report. IAW DFARS PGI 242.302(a)(S-75)(e)(3): (a) The CMS must submit the annual CM report to the ACO for review no later than October 31st. (b) The ACO must submit the annual CM report to the CMO Contracts Director, DCMAS DACO supervisor, or CACO/DACO Division team supervisor through the CACO if applicable, for review and approval/disapproval of the annual CM report no later than November 10th. (c) The CMO Commander/Director, the CACO/DACO Division Director of cost and pricing Regional Command or DACO supervisor of DCMAS must concur or non-concur the annual CM report no later than November 29th and verify whether the ACO provides a copy of the approved annual CM report to the cognizant DCAA office within 15 calendar days of approval. The Director of the CACO/DACO Division, CMO Commander/Director, or Director of DCMAS Cost and Pricing Center may delegate management concurrence or non-concurrence of the annual CM report no lower than the first line supervisor. (4) The DCMA-MAN 2201-01 Resource Page contains a link to an annual CM report template to assist in the preparation of the annual CM report.


Section 5: Technical Support to Indirect Costs 32

SECTION 5: TECHNICAL SUPPORT TO INDIRECT COSTS 5.1. TECHNICAL SUPPORT TO INDIRECT COSTS REQUESTS. TSI is performed for any technical analysis of a contractor’s FPRP. TSI activities include Business Base, IR&D/B&P, Cost Estimating Relationship (CER), Cost Reduction Initiative (CRI) and Facilities Cost technical analyses. TSI activities are also performed in support of DCMA CM efforts. For some CMTs, it may be beneficial to assign a Technical Specialist to serve as a key member of the CMT to perform technical analyses as scheduled in a CM plan. All CM efforts requiring technical support will be requested via the TSI request process. Additional guidance in performing TSI analysis and guidance on the agency authorized capability can be located on the Resource Page of the Manual. This Section provides the processes for DCMA TSI IAW FAR Subpart 15.4 and DFARS Subpart 215.4, “Contract Pricing,” with a focus on FAR 15.404-1(e), “Technical Analysis.” 5.2. RECEIVE AND COORDINATE TECHNICAL SUPPORT TO INDIRECT COSTS REQUEST. Requests may come from an internal requestor or a requestor external to DCMA. a. Receive TSI Request. TSI requests will be received via the agency authorized capability. TSI requests received outside the agency authorized capability will be routed to the TSI Coordinator. Any request sent directly to the Technical Specialist will be routed to the TSI Coordinator. (1) Create TSI Record. The TSI coordinator will create a record for TSI cases utilizing the agency authorized capability. Refer to the Resource Page for details on using the agency authorized capability. (2) Review TSI Request. The TSI coordinator will review the request to ensure that it specifies the technical analyses to be performed. If the request does not clearly specify the analyses to be performed, the TSI Coordinator will contact the requestor for clarification. (3) Receipt Confirmation of TSI Request. The TSI Coordinator must inform the requestor that the TSI request has been received. b. Coordinate TSI Request. All requests must be coordinated between the TSI Coordinator and the Technical Supervisor Lead. (1) Review Scope of Request. The scope of the request must be reviewed by the TSI Coordinator and the Technical Supervisor Lead to identify requirements and resources necessary to complete the TSI by the requested due date. (2) Assign Technical Specialist. The Technical Supervisor Lead will assign a Technical Specialist to perform the TSI review. In situations where multiple Technical Specialists are needed for the TSI review, the Technical Supervisor Lead will assign a primary individual to lead the TSI review. The CMO must not reject a request due to the lack of resources or expertise without elevating the request by following the procedures on the Resource Page.



(3) Communicate with Requestor. The Technical Specialist should communicate with the requestor early in the TSI process to ensure that both parties are in agreement regarding the scope of the effort and to establish expectations regarding the TSI process. c. TSI Request Documentation. The TSI Coordinator must document receipt of TSI requests and confirmation of requests in the technical case file (See Paragraph 5.7.). d. Monitor TSI Requests. The TSI Coordinator will provide oversight of the established timeline for all requests, including approval status and final submittal of TSI reports. The TSI Coordinator will: (1) Track TSI receipt date, Technical Specialist acknowledgement date, agreed to TSI due date and date the final report was sent to the requestor. (2) Provide information to internal/external customers on TSI status when requested. 5.3. REVIEW TECHNICAL SUPPORT TO INDIRECT COSTS REQUEST. TSI requests are reviewed to ensure understanding of scope of work requested and to ensure that all documentation necessary to begin the effort is provided by the requestor. The review of the provided documentation allows the Technical Specialist to develop a technical approach to support the request, and to provide the requestor with an acknowledgement. a. TSI Request Package Requirements. The Technical Specialist will review the TSI request package for completeness. The TSI request package must include the analysis request, a copy of the FPRP or special review documentation when part of a CM effort, all supporting documentation provided by the contractor and the points of contact for the proposal. The Technical Specialist will include all correspondence and information received in the case file (see Paragraph 5.7.). b. Technical Approach. The technical Specialist should discuss the technical approach that will be taken to evaluate the proposal with the technical Supervisor Lead. It is encouraged that the technical Specialist develop a technical risk approach.

c. Send Acknowledgement of TSI Request.

(1) When only one technical Specialist is assigned to perform a TSI review, the Technical Specialist will send an acknowledgment letter/email accepting the scope of work and due date to the requestor and TSI Coordinator. (2) When more than one Technical Specialist is assigned to perform a TSI review, the primary individual will coordinate with the other Technical Specialists and send an acknowledgement letter/email accepting the scope of work for all the Technical Specialists and agreed-to due date to the requestor and TSI Coordinator. (3) The Technical Specialist will document acknowledgement in the case file (see paragraph 5.7.).



d. Changes to Requested Due Date. If the requested due date cannot be met, a revised due date will be coordinated with the technical Specialist, TSI Coordinator, Technical Supervisor/ Lead and the requestor. e. Deviation from Original Request. If deviations from the requested TSI analysis scope are required, the revised scope will be coordinated with the technical Specialist, TSI Coordinator, Technical Supervisor/Lead and the requestor and must be included in the acknowledgement letter/email. 5.4. PERFORM TECHNICAL SUPPORT TO INDIRECT COSTS ANALYSIS. The objective of TSI analysis is to provide sufficient information and insight into a contractor’s proposed costs to assist the ACO in the timely negotiation of fair and reasonable FPR and to provide CM with requested technical analysis results. a. Proposal/Data Walk Through. The Technical Specialist should contact the requestor to set up a proposal walk through with the contractor. The walk through should be done as early as possible within the TSI process and all proposal review team members should be invited to participate. b. Data Review. The Technical Specialist must perform a review of the data provided by the contractor to support the rationale and estimates within the FPRP proposal IAW FAR 15.404-2, or a review of the requested CM items. This review should allow adequate time to request additional information from the contractor. Per local guidance, the Technical Specialist may request needed data either during fact-finding sessions with the contractor or via a Request for Information (RFI) submittal. (1) Fact Finding. When fact-finding sessions are conducted, the request should be coordinated with the contractor POC and the requestor should be informed. Other proposal evaluation team members should be invited, as appropriate. Following the meeting, ensure that any pertinent information provided by the contractor is documented in a MFR or similar means. The minutes and action items should also be sent to the contractor representative to make sure there are no disagreements relative to what information was provided and/or to document what additional information needs to be provided.

(2) Request for Information. When RFIs are used, the requestor or local guidance should dictate the appropriate RFI process. The requestor should be copied on all RFIs. c. Technical Analysis. The Technical Specialist must address all areas identified in the TSI request and agreed to in the acknowledgement letter/email. Analysis and recommendations should be based on facts and quantitative data. When a large volume of data exists, it is at the discretion of the Technical Specialist to conduct risk based sampling to develop the government recommended positions. Sampling size should be adequate to allow for valid justification and defense of recommendations. (1) Estimating System Deficiencies. If, during evaluation of a proposal, any significant estimating system deficiencies are identified IAW DFARS 215.407-5-70(d)(1), “Reporting of



findings,” the Technical Specialist will notify the cognizant ACO in writing and document this information in the TSI report. (2) Perform Technical Analysis of Business Base. The Technical Specialist must ensure that the contractor’s business base reflects the total labor, material, and other direct costs for projected sales. The Technical Specialist will understand the contractor’s business base forecasting process and the resultant demand forecast. Technical analysis must ensure: (a) Contractor has identified all existing and projected demand. (b) Contractor’s business base accurately reflects the costs for the existing and projected demand. (c) Contractor’s business base accurately reflects the time phasing of costs for the existing and projected demand. (3) Perform Technical Analysis of Independent Research and Development. Technical Specialist must ensure compliance with FAR 31.205-18 and DFARS 231.205-18. Refer to the Resource Page for a listing of contractor IR&D data and information that may be requested in addition to the data and information received in the original request package. (4) Perform Technical Analysis of CERs. Technical Specialist must ensure that contractor CERs are valid, applicable by determining if: (a) There is a causal relationship between the independent and the dependent variables. (b) Data is current, accurate, and complete. (c) Independent and dependent variables are clearly defined, with exceptions explicitly documented. (d) Data exclusions/adjustments are specified. (e) Conditions of use are specified, including deviation process. (5) Perform Technical Analysis of Proposed Contractor CRI. The Technical Specialist will determine if the contractor CRI satisfies the criteria identified in DFARS 215.404-71-5 and assess whether a contractor’s estimated cost savings projections are reasonable. In support of CM efforts, the Technical Specialist will determine if implemented Cost Reduction Initiatives have resulted in cost savings. As part of an FPRP evaluation, the Technical Specialist will evaluate contractor Cost Reduction Initiatives in order to assess their cost on applicable FPRP cost pools and bases.



(6) Perform Technical Analysis of Facility Costs. Technical analysis of facility costs may include idle facilities, idle capacity, plant rearrangement, rental costs, depreciation (capital equipment and facilities), and information technology (IT). The Technical Specialist must: (a) Identify the status and use of the facilities identified by the requestor. Indirect costs related to idle facilities and idle capacity are addressed in FAR 31.205-17. (b) Review the proposed change and/or verify the existing change is as described by the contractor. Plant rearrangement costs are addressed in FAR 31.205-25. (c) Evaluate a contractor’s asset depreciation (capital equipment and facilities) to ensure the depreciated tangible and intangible assets are credible and relevant. Asset inventory lists should be checked to validate the status of the asset and to ensure that asset retirements have been properly captured. The Technical Specialist will review milestone schedules and project progress. When depreciation expense is tied to a particular project, evaluate the project’s status and the percentage of work completed on the project. A capital improvement plan asset or capital work in progress asset which is not completed may not be depreciated until the asset is placed in service. (d) Review IT to determine reasonableness for DoD usage. Review considerations include need for proposed projects, purchases, and level of current IT needs. d. Due Date Extension Request. Typically, extensions are requested due to unplanned RFIs, unresponsiveness from the contractor and scope changes. If an extension to the agreed to due date is required once the TSI effort is in process, the Technical Specialist will coordinate the extension with the Technical Supervisor Lead using the agency authorized capability. The rationale must be documented, identifying all acknowledgment and extension dates in the request. The extension must be agreed to by the requestor and documented. e. Case File Documentation. The Technical Specialist must document working papers consistent with the technical case file index (located on the Resource Page). 5.5. PREPARE TECHNICAL SUPPORT TO INDIRECT COSTS REPORT. The Technical Specialist must prepare a TSI report incorporating the findings and recommendations of all proposal areas requested, to include recommendations and supporting analysis from all necessary functional areas (e.g., engineering, manufacturing, quality, and software) as required by the request and identified in the acknowledgement letter/email. Generic statements should be avoided. The Technical Specialist must identify what they reviewed based on the TSI request and the methodology/technique used during their analysis to support the Technical Specialist’s recommendation.

a. Report Format. The Technical Specialist must follow the local CMO procedures for TSI report formatting. If one does not exist, the TSI Report template located on the Resource Page may be used. Requestor specified formats are acceptable. (1) Content. At a minimum, the Technical Specialist must include:



(a) Analysis requested (b) Executive Summary with table summarizing technical analysis results and recommendations. (c) Proposal background/introduction and number. (d) Scope and limitations of the TSI Analysis. (e) Contractor/Government Personnel contacted. (f) Technical Methodology/Scope and Limitations:

• Evaluation Methodology • Technical Approaches • Scope of technical evaluation/analysis performed and/or limitations

(g) Detailed results by proposal elements to include:

• Proposed information (contractor’s basis of estimate) • Analysis and results leading to Technical Specialist’s position • Recommended government position with rationale

(h) Documents/reference material used in Technical Specialists analysis (as applicable). (i) Offer to support negotiations (j) Restrictions (k) Signature block (2) Document Deviations from Request. The Technical Specialist must document any agreed-to deviations from the original request. (3) Document Estimating System Deficiencies. The TSI report must describe the deficiencies in sufficient detail IAW DFARS 215.407-5-70(d)(1), “Reporting of findings.” (4) Apply Proper Markings. All technical reports and other relevant documents containing CUI must be properly marked. See Paragraph 7.4. Government or contractor proprietary data must be properly marked and/or protected as required by law and regulation. When disclosure to the public of a particular record, or portion thereof, would reasonably be expected to cause a foreseeable harm to an interest protected by one or more provisions of the FOIA, the document should be properly marked as CUI as appropriate.



b. Consolidate Report. The primary individual referred at the Paragraph 5.2.b.(2) will coordinate with all applicable functional areas to obtain Technical Specialist written detailed results for each assigned element. The primary individual will consolidate inputs into one comprehensive report. c. Prepare Case File for Review. The Technical Specialist should assemble the case file prior to the review and approval process (see Paragraph 5.7., for creating a technical case file). d. Submit Report for Review. The Technical Specialist or primary individual will submit a draft TSI report that incorporates the analysis and technical recommendations to the Technical Supervisor/Lead for review and comment as appropriate. e. Review TSI Report and Technical Case Files. The Technical Supervisor/Lead will review the draft TSI report and technical case files and provide feedback/recommendations as required to the author of the TSI report. f. Sign and Approve Reports. All reports must be signed by a Technical Specialist and reviewed, approved, and signed by the Technical Supervisor/Lead (physically or electronically). Review, approval, and signature of the Technical Supervisor/Lead signifies that the report’s contents meet all policy requirements and all the requirements of the TSI request identified in the acknowledgment letter/email. (1) Releasing Preliminary Results. For internal purposes, the report can be unofficially provided to the DCMA requestor for incorporation into their analysis. The DCMA requestor should not release the preliminary TSI report to external customers prior to review and approval of the preliminary TSI report. (2) Higher Level of Authority Signature. If the Technical Supervisor/Lead prepares the TSI report, the technical case file review and the final approval signature must be at least one level above the preparer. g. Submit Report. The Technical Specialist will send the TSI report and supporting documentation to the requestor. h. Report Documentation. The Technical Specialist will ensure that the signed approved report is in the technical case file. i. Close TSI Case File. The Technical Specialist will close completed cases in agency authorized capability for managing pricing and technical pricing identified on the Resource Page. 5.6. PROVIDE NEGOTIATION SUPPORT. When requested, the Technical Specialist must support negotiations as necessary. Ad hoc support may be requested of the Technical Specialist who completed the analysis of the area needing support. Negotiation support requests impacting workload should be routed in the same manner as a TSI request.



5.7. COMPLETE TECHNICAL SUPPORT TO INDIRECT COSTS SUPPORT. The technical case file must contain all documents and correspondence used, or referenced in the response. The case file must include a completed Case File Documentation Checklist and a Case File Index located in the Resource Page. 5.8. RECORDS MANAGEMENT. Records Management will be conducted IAW Section 7 of this Manual.


Section 6: Contract Insurance/Pension Review 40

SECTION 6: CONTRACT INSURANCE/PENSION REVIEW 6.1. DETERMINE THE NEED FOR A CONTRACTOR INSURANCE/PENSION REVIEW. a. An in-depth CIPR as described at DFARS 242.7301(a)(1) will be conducted only when: (1) A contractor has $50 million of qualifying sales to the Government during the contractor’s preceding fiscal year. Qualifying sales are sales for which certified cost or pricing data were required IAW 10 U.S.C. 2306a, “Cost or Pricing Data: Truth in Negotiations,” as implemented in FAR 15.403, “Obtaining Certified Cost or Pricing Data,” or that are contracts priced on other than a firm-fixed-price or fixed-price with economic price adjustment basis. Sales include prime contracts, subcontracts, and modifications to such contracts and subcontracts, and (2) The ACO, with advice from DCMA insurance/pension specialists, DCAA auditors and/or Host Nation auditors, determines whether a CIPR is needed based on a risk assessment of the contractor’s past experience and current vulnerability IAW DFARS 242.7302(a)(1)(ii). b. Special CIPR that concentrates on specific areas of a contractor’s insurance programs, pension plans, or other deferred compensation plans must be performed for a contractor including, but not limited to, a contractor meeting the requirements in DFARS 242.7302(a)(1), when any of the following circumstances exists, but only if the circumstance(s) may result in a material impact on Government contract costs IAW DFARS 242.7302(b): (1) Information or data reveals a deficiency in the contractor’s insurance/pension program. (2) The contractor proposes or implements changes in its insurance, pension, or deferred compensation plans. (3) The contractor is involved in a merger, acquisition, or divestiture. (4) The Government needs to follow up on contractor implementation of prior CIPR recommendations. (5) The contractor makes a cost accounting practice change to its method of allocating the cost or assigning cost to accounting periods that affects pension and or insurance costs. c. When a Government organization believes that a review of the contractor’s insurance/pension program should be performed, that organization should provide a recommendation for a review to the ACO. If the ACO concurs, the review should be performed as part of an ACO-initiated special CIPR or as part of a CIPR already scheduled for the near future. d. Typical conditions that warrant a full or special CIPR are as follows:



(1) Review of contractor’s method of estimating contributions to a defined benefit plan. (2) Review of a contractor’s method of estimating contributions to a fund other than employee pension plan; e.g., a post retirement benefit plan. (3) Review of a contractor’s method of estimating insurance costs. (4) Review of the contractor’s allocation method or changes in allocation method required to remain in compliance with CAS 412, 413, and 416. (5) Corporate external or internal restructuring that triggers changes to current allocation methods. (6) Business unit closings. e. Mandatory Self-Insurance Program Review. A mandatory review must be requested when pursuant to FAR 28.308, “Self Insurance,” a contractor submits, in writing, information on its proposed self-insurance program for ACO approval. f. External Customer Request. This refers to a request for a review of indemnification for unusually hazardous or nuclear risk activities pursuant to FAR 50.104-3. The ACO will forward these requests to the CIPR Center. The CIPR Center will perform CIPR reviews for external customers IAW the Workload Acceptance procedures job aid located on the Resource Page of DCMA-MAN 2501-01, “Contract Receipt and Review.” The CIPR Center will provide a report directly to the external customer. 6.2. REQUEST AND PLAN A CONTRACTOR INSURANCE/PENSION REVIEW. a. Request a CIPR by sending an email to the CIPR Center. The email address for the center is located at the Resource Page. b. The CIPR Center will accomplish all related work virtually. In instances when critical issues cannot be resolved, the ACO may schedule an on-site review. c. At the onset of a review, the CIPR Center will determine the data required and prepare a data request to the ACO for forwarding to the contractor. d. CIPR specialist conducts analysis on the contractor’s insurance/pension plans and other related data for incorporation into the final CIPR report. e. Prior to issuance of the CIPR Report to an ACO or external customer, a supervisory review and approval must occur. f. After supervisory review and approval occurs, the CIPR Center issues the CIPR Report to the ACO in time to support the development of a negotiation position. The report may not be released to the contractor except by the cognizant ACO.



6.3. DISPOSITION CONTRACTOR INSURANCE/PENSION REVIEW FINDINGS. a. The ACO or cost monitor will consider for incorporation, the recommendations of the CIPR Center into a PNOM, as appropriate. The ACO will submit the PNOM for supervisory review and concurrence. Failure to agree with the recommendation of the CIPR Center may require a BoR IAW BoR General Practice located on the main Resource Page of DCMA-INST 2201. b. Upon conclusion of negotiations, the ACO drafts the PNM and submits for supervisory review and concurrence. c. The ACO must ensure that rate documents are properly marked with contractor proprietary markings and identified as CUI as appropriate. See Paragraph 7.4., of this Manual for more details. d. The ACO or cost monitor will retain the CIPR report, as part of the process it supports, in a filing location designated by the Agency. See Section 7 of this Manual for more details. e. The ACO must disposition audit report findings IAW DCMA-MAN 2201-04, “Contract Audit Follow-Up.”


Section 7: Retention of Records 43

SECTION 7: RETENTION OF RECORDS 7.1. REQUIREMENT TO ESTABLISH FILES. a. The CMO Commander/Director, CACO/DACO Division Director, or DCMAS DACO supervisor must ensure that files are established and contain the official contract records for actions taken regarding FPR, CM, TSI, and CIPR. The ACO must follow the DCMA Records Management and Retention policy and procedures as identified under DCMA-INST 809 (DCMA-INST 809 to be replaced by DCMA-MAN 4501-04, Volume 1). The DCMA Records Management policy provides guidance for the requirement to establish files containing the official records of all contractual actions as they relate to FPR, CM, TSI, and CIPR IAW FAR 4.801(a). b. The documentation in the file must, IAW FAR 4.801(b), be sufficient to constitute a complete history of the transaction for the purposes of: (1) Providing a complete background as a basis for informed decisions at each step in the analysis process. (2) Supporting actions taken. (3) Providing information for reviews and investigations. (4) Furnishing essential facts in the event of litigation or congressional inquiries. c. The examples of the records normally contained in contract files, if applicable, are listed in FAR 4.803. d. CM files should include documents supporting CM reviews to include: cited conditions, causes and effects, the analyst’s conclusions, and all contractor correspondence. Additionally, the CMS should place electronic official files in the Agency-approved document repository for FPRA reviews, FPRA negotiations including a record of all FPRAs (current and historical), FPRRs (current and historical), and final overhead rates. The file will include all historical and currently forecasted direct and indirect rates, pools, and bases. Additionally, the file will include all actual rates, pools, and bases after closeout of the CFY. Further, the files will contain historical and projected headcount information identified as direct, indirect, and total headcount. If a file does not exist currently at a contractor’s location, the CMS will collect data for the last 5 years, as available, and create a record. The CMS will update and continually maintain the file. 7.2. STORAGE, HANDLING AND DISPOSAL. Reference the DCMA Records Management and Retention policy and procedures identified under DCMA-INST 809 (DCMA-INST 809 to be replaced by DCMA-MAN 4501-04, Volume 1), and the DCMA-MAN 4501-04, Volume 2, “Records Retention Schedule.” Retention of file documentation is the responsibility of the ACO.


Section 7: Retention of Records 44

7.3. RECORDS MANAGEMENT SYSTEM. The DCMA Records Management and Retention policy and procedures as identified under DCMA-INST 809 (DCMA-INST 809 to be replaced by DCMA-MAN 4501-04, Volume 1) provides an orderly system for organizing records for filing and eventual disposition. The responsibility for maintaining historical documentation of transactions that occur during a work process rests primarily with the functional specialist executing that process. The ACO and all functional specialists will store official contract files in the approved Agency document repository. Documents that would normally be filed in hardcopy folders, as referenced in the FAR, will be uploaded to the Agency-approved document repository after final approval of the action. ACOs and functional specialists will properly categorize documents for electronic retrieval and records retention purposes using specific metadata when uploading documents into the document repository. 7.4. PROTECTING CLASSIFIED AND CONTROLLED UNCLASSIFIED INFORMATION. Protecting information is critical and integral when conducting the processes associated with this Manual. DCMA personnel are responsible for protecting classified and Controlled Unclassified Information entrusted to them. DCMA personnel must take prudent steps to ensure final disposition of classified and Controlled Unclassified Information per DCMA and DoD policy. These procedures vary based on the type, access, and nature of the material involved. Refer to the DCMA-MAN 3301-08 for guidance in the control, transmission, destruction, and storage of such material.


Glossary - Definitions 45

GLOSSARY

G.1. DEFINITIONS. Unless otherwise noted, these terms and their definitions are for the purpose of this issuance. Billing Rates. An indirect cost rate: (1) established temporarily for interim reimbursement of incurred indirect costs; and (2) adjusted as necessary pending establishment of final indirect cost rates IAW FAR 42.701. Business Day. A business day is considered every official work day of the week. These are the days between and including Monday through Friday, and do not include U.S. public holidays and weekends. Calendar Day. A calendar day is defined as any 24-hour period between Sunday through Saturday to include U.S. public holidays and weekends. CER. A technique used to estimate a particular cost or price by using an established relationship with an independent variable. Identification of an independent variable (driver) that demonstrates a measureable relationship with contract cost or price establishes a CER. Cost Objective. Cost objective means a function, organizational subdivision, contract, or other work unit for which cost data are desired and for which provision is made to accumulate and measure the cost of processes, products, jobs, capitalized projects, etc. IAW FAR 31.001. Direct Cost. Direct cost means any cost that is identified specifically with a particular final cost objective. Direct costs are not limited to items that are incorporated in the end product as material or labor. Costs identified specifically with a contract are direct costs of that contract. All costs identified specifically with other final cost objectives of the contractor are direct costs of those cost objectives IAW FAR 2.101. Final Cost Objective. Final cost objective means a cost objective that has allocated to it both direct and indirect costs and, in the contractor’s accumulation system, is one of the final accumulation points IAW FAR 31.001. FPRA. FPRA means a written agreement negotiated between a contractor and the Government to make certain rates available during a specified period for use in pricing contracts or modifications. These rates represent reasonable projections of specific costs that are not easily estimated for, identified with, or generated by a specific contract, contract end item, or task. These projections may include rates for such things as labor, indirect costs, material obsolescence and usage, spare part provisioning, and material handling IAW FAR 2.101. FPRP. An FPRP is a set of rates and factors established by the Contractor and submitted to the Government for use bilaterally; by the Contractor to develop proposals; and by the Government to set an FPRR or negotiate an FPRA.


Glossary - Definitions 46

FPRR. A rate set unilaterally by the administrative contracting officer for use by the Government in negotiations or other contract actions when forward pricing rate agreement negotiations have not been completed or when the contractor will not agree to a forward pricing rate agreement IAW FAR 2.101. Indirect Cost. Indirect cost means any cost not directly identified with a single final cost objective, but identified with two or more final cost objectives or with at least one intermediate cost objective IAW FAR 2.101. IR&D Cost. IR&D costs means the cost of effort which is neither sponsored by a grant, nor required in performing a contract, and which falls within any of the following four areas (1) basic research, (2) applied research, (3) development, and (4) systems and other concept formulation studies IAW FAR 31.001.


Glossary – Acronyms 47

GLOSSARY

G.2. ACRONYMS. ACO Administrative Contracting Officer BoR Boards of Review CACO Corporate Administrative Contracting Officer CAS Cost Accounting Standards CBAR Contract Business Analysis Repository CER Cost Estimating Relationship CFAO Cognizant Federal Agency Official CFY Contractor Fiscal Year CIPR Contractor Insurance/Pension Review CM Cost Monitoring CMO Contract Management Office CMP Cost Monitoring Program CMS Cost Monitoring Specialist CMT Cost Monitoring Team CRI Cost Reduction Initiative CUI Controlled Unclassified Information DACO Divisional Administrative Contracting Officer DCAA Defense Contract Audit Agency DCMA-INST DCMA Instruction DCMA-MAN DCMA Manual DCMAS DCMA Special Programs DFARS Defense Federal Acquisition Regulation Supplement DFARS PGI DFARS Procedures, Guidance, and Information DTIC Defense Technical Information Center EMGC Engineering and Manufacturing Group Chief FAR Federal Acquisition Regulation FOIA Freedom of Information Act FPR Forward Pricing Rates FPRA Forward Pricing Rate Agreement FPRP Forward Pricing Rate Proposal FPRR Forward Pricing Rate Recommendation IAW in accordance with ICAG Integrated Cost Analysis Group IR&D/B&P Independent Research and Development/Bid and Proposal IT Information Technology


Glossary – Acronyms 48

MFR Memorandum For Record PNM Price Negotiation Memorandum PNOM Prenegotiation Objectives Memorandum POC point of contact RFI Request for Information TSI Technical Support to Indirect Costs


References 49

REFERENCES Code of Federal Regulations, Title 48, Chapter 99 DCMA Instruction 809, “Records Management,” May 1, 2011 DCMA Instruction 2301, “Contractor Effectiveness,” January 24, 2019 DCMA Manual 2201-03, “Final Indirect Cost Rates,” February 14, 2019 DCMA Manual 2201-04, “Contract Audit Follow Up,” March 3, 2019 DCMA Manual 2301-01, “Contractor Business Systems,” April 28, 2019 DCMA Manual 2501-01, “Contract Receipt and Review,” March 24, 2019 DCMA Manual 3301-08, “Information Security,” January 21, 2019 DCMA Manual 4501-04, Voume 1, “Records and Information Management Program,” TBD DCMA Manual 4501-04, Volume 2, “Records Retention Schedule,” April 14, 2021 DCMA Memorandum #14-182, “Contractor Business Analysis Repository (CBAR) Templates,”

May 30, 2014 Defense Finance ARS 215.404-71-5 DFARS 215.407 DFARS 231.2 DFARS 242.7 DFARS 244.301 DFARS PGI 215.407-4 DFARS PGI 242.73 DFARS PGI 242.302(a)(S-75) DoD Directive 5105.64, “Defense Contract Management Agency (DCMA),” January 10, 2013 FAR 2.101 FAR 3.104-4 FAR 4.801(a) FAR 4.801(b) FAR 4.803 FAR 4.805 FAR 5.4 FAR 15.404-1(e) FAR 28.308 FAR 31.001 FAR 31.103(a) FAR 31.109 FAR 31.205-18 FAR 31.205-17 FAR 31.205-25 FAR 42.701 FAR 42.704 FAR 42.704(d) FAR 42.1701 FAR 50.104-3 United States Code, Title, 10, Section 2306(a)